patrick.net

ch_tah says

Well, when you are talking about Marin County or Cupertino or Palo Alto, do you honestly think you will ever be talking about less than $500k for a house?

Of course not. I'm just sayin'. I've lived here for 12 years and came from somewhere where houses are still 150k. People always tell me its naturally more expensive in the Bay Area. But 600,700,800k? For a house? I mean-seriously. Yeah yeah yeah we all know... But honestly? No freakin' way will the thought of paying that kind of money- for a house- ever cross my mind.

Sorry for stating the obvious. I guess I haven't been conditioned yet.

edvard2 says

Of course not. I’m just sayin’. I’ve lived here for 12 years and came from somewhere where houses are still 150k. People always tell me its naturally more expensive in the Bay Area. But 600,700,800k? For a house? I mean-seriously. Yeah yeah yeah we all know… But honestly? No freakin’ way will the thought of paying that kind of money- for a house- ever cross my mind.

Sorry for stating the obvious. I guess I haven’t been conditioned yet.

I completely agree with you. I've lived here about the same amount of time and came from somewhere where waterfront properties on half acre plots don't cost half as much as a tiny POS in Palo Alto. Until things crash, which I personally don't see happening, you have to pay what the going rate is or move. And I don't fault those who move.

I think we got side tracked. Could you all please go back to original question ?

I have same question. All home experts please reply. My wife and I have combined salary of $175k. My wife is taking a break for a year as we are having a baby, so we are left with single salary of $110k for about a year. We really like a house for $640k and we want to buy it but not sure if we should go for it. Our rent is going to increase to $2300/ month. We have down payment of about 20 percent.

leo9 says

I think we got side tracked. Could you all please go back to original question ?
I have same question. All home experts please reply. My wife and I have combined salary of $175k. My wife is taking a break for a year as we are having a baby, so we are left with single salary of $110k for about a year. We really like a house for $640k and we want to buy it but not sure if we should go for it. Our rent is going to increase to $2300/ month. We have down payment of about 20 percent.

I'm not sure what a home expert is, but here's a response. Have you used any calculators to analyze this yourself? You have provided very little information. Particularly, if you have 20% to put down, how much are you left with? Are you sure your wife will go back to work after 1 year? Have you looked at how much daycare is if she does go back to work? Do you have other big expenses?

This is very good point. After putting 20% we are not left with much money. Say $40K at the most. My wife will go back to work for sure after an year. Our salary will be back to normal which is $175k. Day care expense runs around $1500 in bay area.

leo9 says

This is very good point. After putting 20% we are not left with much money. Say $40K at the most. My wife will go back to work for sure after an year. Our salary will be back to normal which is $175k. Day care expense runs around $1500 in bay area.

Ok. Yeah, $1500 is a fair estimate. How about doing a spreadsheet with all of your expenses and income? We just used the past few months of bank statements and figured out how much went to food, gas, utils, house payment, etc. It can be very eyeopening and is truly a much better gauge than even people as knowledgeable about housing as E-man telling you, yes or no. Use an online calculator to figure out housing costs and then add everything else in there. Try to think ahead too. Daycare is $1500, but don't forget diapers cost about $45/month, formula if you need it is pretty pricey, etc. Toys - at least a few hundred $ a month. ;) That baby adds up quickly. Also try to guesstimate maintenance costs too.

I have little to add to this discussion, not being a Bay Area resident or having much info on what homes there are worth, but it never ceases to amaze me how high all of your salaries are.

If you have the education, skills, and work ethic to be making six figures (and have spouses who can too!), how can you be so worried about the future?

For comparison, I make about $40-50k per year in one of the world's most expensive cities, saved my money diligently straight out of college, and in my 11th year in the working world paid all cash for my $140k condo, leaving me house-rich and very, very cash-poor. My future wife only went to high school and will never make a high salary.

I wasn't nervous at all about that decision. I was much more nervous about what would happen to my hard-earned cash if inflation robbed me of its value. Buying the shelter that I would need anyway was a no-brainer. Now I've got money saved again and am again worrying about what will happen to my cash.

All of you, stop worrying. Just buy a modest home that costs three or four years' salary and relax.

I do not believe that buying a house will be a losing proposition if you stay there for a long time.
You always will have the option of reverse-mortgage in your retirement. Your kids won't like it but you can get some of the money back from all of your house payments.
Inflation is not very high these days, but the inflation, dropping dollar and so forth make holding cash in dollars eventually a losing proposition. But, it won't go down to zero either.
Vanguard has some bond funds that are not going to suffer a big drop of NAV probably. I own Vanguard Total Bond Index. But, my time horizon for the fund is very long.
Since you cannot borrow for your retirement, I would max out the IRAs if possible, Roth is preferred.
There is a "tax managed" vanguard group of funds which are good at not producing 1099 div income to you each year, which is like a retirement account also for tax purposes, but more flexible.
I think that I would try to keep some of that nest egg invested for retirement even if I bought a house. You can borrow for children's college, they can get part time jobs, etc.

Michinaga says

I have little to add to this discussion, not being a Bay Area resident or having much info on what homes there are worth, but it never ceases to amaze me how high all of your salaries are.

If you have the education, skills, and work ethic to be making six figures (and have spouses who can too!), how can you be so worried about the future?

Well for one, salaries are pretty inflated here in the Bay Area. My husband works part time (30-35 hours a week) as a mechanic and makes about 65k a year or more. I work as a senior sysadmin and make 100k. If we were to leave he would be lucky to make 35-45k and most out of state job offers are closer to the 75-85k range for sysadmin.

For me, I worry about the future because I don't think in today's world one can bank on having both people work, and assume you will always be making as much or more than you are right now. The Bay Area has areas close to job centers with lovely people where you can buy a decent to very nice home for $250k-400k easily.

I am with you, we live in a modest home in a modest area and can survive given the worst case scenario, and we live like this on purpose. One can live like this just about everywhere. But in the Bay Area, everybody "needs" to live in certain zip codes to feel like they have any self worth. It's sad.

merlino says

I may be naive but I was told tenure position at UCSF is pretty safe. I say 150k$ combined salary because my wife takes care of the kids at home and we only use daycare twice a week. She plans to get back to her small business in a couple years.
We know that we would be pretty tight in the next few years but assuming that we give a good 200k$ in downpayment, then I think we would be able to survive without work (with some help) for at least 8 months to sell the home.
Again, we are not actively trying to buy. We are looking at what to do with 250k$. It is currently sitting in a CD which is ridicules.
Thanks for the comments.
merlino

interested in being an angel investor?

Great, another "young talent" brought to the bay area to drive up an inflated housing market. How about learning to live with a little less and giving something back to the community (and no, being a doctor or whatever you are doesn't count because you are well compensated for it)?

Tude says

in the Bay Area, everybody “needs” to live in certain zip codes to feel like they have any self wort

Not everybody.

Just everybody who has those kinds of values.

Sikit says

Great, another “young talent” brought to the bay area to drive up an inflated housing market. How about learning to live with a little less and giving something back to the community

Yep.

Sikit, scroll back to my remark # 743990 that one of Our Bay Area Brethern took "no offense" to.

If I had his income I'd be seriously investing into other businesses right now.

ChrisLA says

If I had his income I’d be seriously investing into other businesses right now.

It's not a business, it's a residence. Not too many people think of their housing cost as owner's equivalent rent.

Sybrib says

ChrisLA says

If I had his income I’d be seriously investing into other businesses right now.

It’s not a business, it’s a residence. Not too many people think of their housing cost as owner’s equivalent rent.

I can't really consider a house an investment, it doesn't make anything.

edvard2 says

Of course not. I’m just sayin’. I’ve lived here for 12 years and came from somewhere where houses are still 150k. People always tell me its naturally more expensive in the Bay Area. But 600,700,800k? For a house? I mean-seriously. Yeah yeah yeah we all know… But honestly? No freakin’ way will the thought of paying that kind of money- for a house- ever cross my mind.
Sorry for stating the obvious. I guess I haven’t been conditioned yet.

Yes, expensive during the bubble years, but like so many other bubbles more of a myth. We certainly saw more economic growth in 80s and 90s, but prices didnt inflate to such a level as they have more recently. Facts may support the region peaked by year 2000, and we may not see such grand growth decades forward. So many after 2000 may have been betting we have huge growth in tech as we had before, but that may not be case.

ChrisLA says

Sybrib says

ChrisLA says

If I had his income I’d be seriously investing into other businesses right now.

It’s not a business, it’s a residence. Not too many people think of their housing cost as owner’s equivalent rent.

I can’t really consider a house an investment, it doesn’t make anything.

Chris I agree with you but did not say it explicitly: he says he's thinking about it as an investment, but his post belies a reality it's more about consumption. Oh well maybe it's a psyche-ic investment.

I am in same boat. Currently, I make 180k base salary and have 140k saved up for a home. I was looking at homes under 500k in Santa Clara, Mountain View, Los Gatos, and San Jose. All were major fixer upper foreclosures that need 100k plus of repairs and year of contractor repair work done! Decent move in ready homes are still way overpriced selling for 750k and up! Bank approved me for 850k for a home but I decided to rent for a while since I am new on the job and anything can happen these days with the economy. It is sheer madness how overpriced the real estate market is in bay area!

Dear Merlino --You folks in the Bay Area makes loads more than we do down here in So.Cal. Of course 25 years ago when my husband and I purchased our home for 325.000 it was A LOT of money--and interest rates were 12% at best. 20% down was required, so our payment was around 3,000.00/mo. At the time we were making combined 120,000. (just lucky entertainment gigs) Two kids.
Our wages are way lower now. And job security is GONE.
I would only caution that property taxes will kill you. Make one improvement and you are doomed. Your taxes could easily go up to 10,000/year. Be cautious. In fact, think smaller and be less stressed. You really can't predict if you might get sick, kids need something costly---I don't know.
We paid off our house 5 year ago and still worry about taxes and water and utility expenses. Please be looking at all the variables. Salaries will not be rising. IMO. And good luck!

ch_tah says

Whether you should buy or not should be entirely based on your personal goals and feelings.

Feelings? You think someone should make the biggest purchase of their life based in large part by their emotions? That's NAR speak.

"I may be naive but I was told tenure position at UCSF is pretty safe."
Are you on a tenure track or just starting? While it is true according to AAUP that only 2% of tenured professors are terminated annually 25% of those that apply for tenure don't make it.

I'd also check the actual union contract. Just because you have tenure does NOT mean that a given pay level is assured, it just means that you cannot get terminated. I've met professors that make variations of pay depending on course load. There's a floor and then you go up from that

Without getting into a political discourse chances are academia has a target on its back with tenure. What's happening with Wisconsin can easily spill over. The other thing to remember is if private colleges/universities gut tenure then the voters will eventually question why it exists in the public sector.

Don't get me wrong it can be a good thing naturally if you can't get terminated it's a job. But that also makes it much harder to find something else if unemployment spikes up.
You have a great deal on that 10% down is 3% rate..but I think 850K is just too high. Maybe you could save a bit more (15% on something lower) and go for a 15 year at just a slightly higher rate.

klarek says

Feelings? You think someone should make the biggest purchase of their life based in large part by their emotions? That’s NAR speak.

Seriously? Can you stop picking out one little snippet, actually in this case one word, from all of my postings and say that is NAR speak. When I said feelings, I meant how he feels about his job security, his desire to stay in the area, etc. Read the rest of my post and you get the gist of what I was saying. Why don't you address the poster's question instead of trying to antagonize me and take over another thread? Everyone of your posts lately shows how petty and pathetic you are; always trying to pick a fight for no reason.

Sybrib says

ChrisLA says

Sybrib says

ChrisLA says

If I had his income I’d be seriously investing into other businesses right now.

It’s not a business, it’s a residence. Not too many people think of their housing cost as owner’s equivalent rent.

I can’t really consider a house an investment, it doesn’t make anything.

Chris I agree with you but did not say it explicitly: he says he’s thinking about it as an investment, but his post belies a reality it’s more about consumption. Oh well maybe it’s a psyche-ic investment.

I figured thats what you meant. Consumption is not investment.

ChrisLA says

I figured thats what you meant. Consumption is not investment.

And a house is not consumption--unless you are planning on consuming it (tearing it down?)

ch_tah says

Can you stop picking out one little snippet, actually in this case one word, from all of my postings and say that is NAR speak.

It wasn't a snippet, and it wasn't a single word. It was your abstract. The guy laid out his entire financial situation above, and your response is that he should base his decision ENTIRELY on goals and feelings. Your words, not mine. You even threw in the "nobody can time the market" b.s. at the end, to boot.

That is absolutely 100% unmitigated NAR horse shit.

ch_tah says

Why don’t you address the poster’s question instead of trying to antagonize me and take over another thread?

I wasn't trying to antagonize you. A remark like that deserves to be called out. I would have responded the exact same way were it Patrick himself saying it.

ch_tah says

Everyone of your posts lately shows how petty and pathetic you are; always trying to pick a fight for no reason.

I'm just trying to dispel the NAR horse shit which euphoric new homeowners repeat to other potential homeowners. Stupid, irrational, baseless, and potentially harmful advice needs to be called out. Don't take it personally.

klarek says

The guy laid out his entire financial situation above, and your response is that he should base his decision ENTIRELY on goals and feelings. Your words, not mine. You even threw in the “nobody can time the market” b.s. at the end, to boot.

Yes, because he didn't say this earlier in the thread:

ch_tah says

Have you used any calculators to analyze this yourself? You have provided very little information. Particularly, if you have 20% to put down, how much are you left with? Are you sure your wife will go back to work after 1 year? Have you looked at how much daycare is if she does go back to work? Do you have other big expenses?

Good try though. You're the white knight fighting the NAR, huh? A modern day McCarthy fighting the good fight!

Klarek, you are full of crap, and you (should) know it. You don't because you are so full of yourself.
I said based on his numbers, he should be able to afford his house. The ultimate decision once you can afford the house is whether you want to own or not based on your personal situation. I seriously am starting to think you have a reading problem.

As for timing the market, even one of the housing gods himself just said he doesn't know what is going to happen next.
http://finance.yahoo.com/blogs/daily-ticker/shiller-housing-could-fall-another-25-harder-predict-112122844.html

Also, make sure you listen closely to the 5 or 10 seconds starting at the 2:20 mark. I never knew Shiller was such as shill for the NAR.

merlino says

I do also feel that our combined monthly income may be tight but we are pretty disciplined. I work at UCSF. The loan program was designed to help/attract “young talents” buy their first residence near campus.

Well, this makes a lot of differences:
"Near campus" Looks like it's about buying in SF itself. In this case you definitely better plan for private schools for your kids. On the other hand property in the city of SF will have a lot of value for international buyers even if prices in other places collapse. In this sense it's much different from the rest of Bay area. It still does not make this an investment but may be some kind of hedge against falling dollar.
Do you actually hold a tenure or it is a tenure track position. It makes a lot of differences. Remeber, UC system is bankrupt together with the whole state. Turning tenure track into tenure may take decades or may never materialize.
What is your field of research? Is it recession proof? Looks like you salaried, means you do not depend on grants. However, such a position may be prone to general budget cuts.

ch_tah says

I said based on his numbers, he should be able to afford his house. The ultimate decision once you can afford the house is whether you want to own or not based on your personal situation.

I had no issue with your first post (again, I'm not picking on you, so stop whining when your dumber remarks are challenged). You said it should be based entirely on goals and feelings. That was an incredibly irresponsible recommendation, the kind of thing that helped usher millions of families into financial peril.

ch_tah says

As for timing the market, even one of the housing gods himself just said he doesn’t know what is going to happen next.

The "nobody can time the market" line is b.s., because it's part and parcel of what every realtor has been saying since the bubble's peak. If you told them you want to wait because housing prices were tanking, they'd tell you that nobody can time it. It has nothing to do with the obvious which is that nobody knows for sure where the market will bottom, or when it will bottom. It's that such a no-brainer remark insinuates that it's a bad idea to wait. If you can't time it, then don't, right? What else could you possibly have meant?

Again, I don't blame you, you've just bought into the NAR b.s. If you repeat their harmful propaganda, expect to be called out on it. If you try to deny it, expect other NAR-like comments you make to become highlighted to reinforce the point. You could take moments like these to edify yourself rather than getting all feisty about it.

tatupu70 says

You’re the white knight fighting the NAR, huh? A modern day McCarthy fighting the good fight!

Like many people, I have very little tolerance for the b.s. NAR puts out, or what their minion agents say. I absolutely loathe it when someone who isn't part of their cartel repeats their b.s. It's worse than free advertising, it's a costless perpetuation of bullshit.

Klarek, I'll just chalk this up to your inability to read and comprehend. Hopefully, others don't have such deficiencies. Or if they do, they'll read all of your posts above that answer their questions.
And yes, I'll just let the fact go that Shiller said he has no way of confidently predicting the market and that owning a home pays a dividend of not having to ask your landlord for permission to do something and homeownership provides a sense of participation.

There was nothing wrong with what Shiller said. He was absolutely correct. It can't be known with certainty when and where the market will bottom. I just told you, this is a very obvious point. The only reason you would say such a thing to somebody who is hesitant about buying in a declining market is to remove any trepidations they have, and to urge them to go for it (or as you said, base it entirely on goals and emotions). These are NAR talking points. I'm trying to help you. Don't be so combative.

Don't help me, I don't need your help. If your point was to help the poster who asked the question, then answer his question. What you did is attack what I said instead. That's pretty much textbook combative. And now you are trying to pull your same crap again of you said it this way, so it's wrong, but I'm going to say it this way, so it's right. If you can't predict the market, then it is not a factor in your decision. If you feel you can, then it is. I couldn't care less if this guy bought. And again, if you read and comprehend, I told the first poster who asked a similar question not to buy. But in your combative nature, you picked the small point that you disagree with, took it out of context and attacked it. It is pathetic, and I can only imagine you do it to because you feel it bulks up your Internet muscles. I can assure you, you have the largest Internet muscles on this site. You don't need to build them up anymore.

Banks are still insolvent unless you presume money printing will continue ad infitum.

Just about every last penny of QE2 went to non-US banks. The bailout continues, but it's the European banks getting the printed money.

Buying real estate now is still a very poor choice.

edvard2 says

A: Retirement. They say that the average American today will need to have 1 million dollars in retirement by the age of 60. Double that if you life in a bubblicious city, and perhaps more if in a mega-bubble city like the Bay Area. This amount doesn’t include the house you live in. That is for one person. At a million dollars, assuming you live to the ripe ole’ age of 100- which isn’t out the the question- that gives you $40,000 a year. In other words- barely scrapin’ by in a place like the Bay Area, hence the required savings would probably be more like 2 million dollars.

I've wondered about retirement advice like this -- if, in retirement, you own your own home, what are you spending $40k/year/person on? If you have money saved up so you don't have to pay taxes on it as income, and you own your home, what are your big expenses? Property tax and basic living expenses shouldn't eat up that much. Sure, you should have extra saved up for emergencies, and hopefully you'll have money to spend on things you enjoy in retirement, but that still seems high.

ch_tah says

Don’t help me, I don’t need your help.

If you are use or believe NAR talking points and flip out when somebody points it out, you need help

If your point was to help the poster who asked the question, then answer his question. What you did is attack what I said instead. That’s pretty much textbook combative.

There have been plenty of good answers above. I don't have anything to add which hasn't been said. I just hope for all the good answers, nobody reads the NAR point you made above and acts on it.

And now you are trying to pull your same crap again of you said it this way, so it’s wrong, but I’m going to say it this way, so it’s right.

When saying "nobody can time the market" during a downward market correction, the impetus you're trying to create is to buy now and not wait out a correcting market. That's how I read it, and I've explained it above, and you aren't denying this.

If you can’t predict the market, then it is not a factor in your decision. If you feel you can, then it is.

If you think that the market is overpriced, then it most definitely becomes a factor. You're talking about the inability to predict exactly when and where the market bottoms, and that one's inability to perfectly predict this is a reason to dismiss a likely market downturn. This is very obvious, very basic stuff. I've already explained it above. I pointed out how Shiller is correct, and how your use of "you can't time it" is a very insidious way of telling a future buyer to not wait. Don't accuse me of poor reading comprehension if you can't pick up those points.

I couldn’t care less if this guy bought. And again, if you read and comprehend, I told the first poster who asked a similar question not to buy. But in your combative nature, you picked the small point that you disagree with, took it out of context and attacked it.

Wrong. Out of context would be like if you said "don't listen to realtors who say you should buy based entirely on your personal feelings" and I accused you of saying they should buy based on personal feelings. I responded to the abstract of your argument, and it was entirely not taken out of context. My response wasn't even combative, you are just ridiculously oversensitive.

It is pathetic, and I can only imagine you do it to because you feel it bulks up your Internet muscles. I can assure you, you have the largest Internet muscles on this site. You don’t need to build them up anymore.

I don't care about internet muscles. I care about people repeating bullshit propaganda they've been spoon-fed by NAR. It is going to be called out whether you like it or not. I was offering to help you because I think you can make some positive contributions like the one way upthread, but they're overshadowed by stuff like this.

jgebis says

I’ve wondered about retirement advice like this — if, in retirement, you own your own home, what are you spending $40k/year/person on? If you have money saved up so you don’t have to pay taxes on it as income, and you own your home, what are your big expenses? Property tax and basic living expenses shouldn’t eat up that much. Sure, you should have extra saved up for emergencies, and hopefully you’ll have money to spend on things you enjoy in retirement, but that still seems high.

You've got to remember that these are projections for today's employees. $40k today is so-so. 40k thirty years ago was great. 40k now is so-so. 40k in 20-30 years will be diddly squat. I think people need to also think about the realistic possibility that you will not only probably have to pay for your own healthcare, which as we've seen is going up a breakneck speed, but that you'll also probably not be getting any Social Security.

The bottom line is that in the future owning your house is really just a tiny piece of the whole equation. Its also true that a lot of people in the Bay Area buy their first house pretty late in the game- as in 35-45 age bracket- or about the time they start having babies. I assume most of them have spent most of their wad on the house and give retirement plans a 2nd thought. I can't tell you how many people I know who did exactly that and are counting on the house to somehow take care of their retirement.

A million dollars in the Bay Area is what I would call barely scraping by in retirment. No thanks. I'll be long gone way before that.

Klarek, keep pumping those Internet muscles. I'm sure one day they will come in handy.

edvard2 says

You’ve got to remember that these are projections for today’s employees. $40k today is so-so. 40k thirty years ago was great. 40k now is so-so. 40k in 20-30 years will be diddly squat. I think people need to also think about the realistic possibility that you will not only probably have to pay for your own healthcare, which as we’ve seen is going up a breakneck speed, but that you’ll also probably not be getting any Social Security.

Good points, for sure. I'm not as concerned with healthcare and social security -- I agree that you shouldn't rely on them being as they are today, but I have no reason to think that they will completely go away.

The bottom line is that in the future owning your house is really just a tiny piece of the whole equation.

Can't argue with that.

ChrisLA says

I can’t really consider a house an investment, it doesn’t make anything.

That is a good attitude. Your own primary residence doesn't produce anything.

That's also why the used house salesman industry is also a net drag on our economy. Used house salesmen (realtors, if you will) are generally rent-seekers and don't usually produce anything. If you find the rare used house salesman who provides value, hang on to them.

tatupu70 says

And a house is not consumption–unless you are planning on consuming it (tearing it down?)

It depends. Depreciation is consumption, and structures depreciate because they have a finite lifetime without remodeling/renovation. In addition, if you pay more to buy than to rent, as is the case in some Bay Area locations, buying housing can be considered consumption.

The size/price also matters. Luxury housing is quite obviously consumption. But if you only need 3BR, and you get a 5BR house, that's a form of consumption.